As you read articles about the current crisis, people are quick to say that “we have been here before” and that this is nothing short of a somewhat-typical downtrend in the market.
If the market trends are not enough to say that what we have at the moment is something very different than what has happened before, I have gathered some data about what banks are currently doing to make a point.
The following three charts are from the website of the Federal Reserve Bank of St. Louis. I have also attached the links to each chart.
The first chart shows the amount of money banks have been getting from the Fed. As you can see, there is a significant spike like nothing we have seen before.
http://research.stlouisfed.org/fred2/series/BORROW?cid=122
This chart clearly tells us that banks are in need of urgent capital. Additionally, it means that liquidity and capitalisation problems are definitely at hand without a doubt.
The second chart has to do with the concern that banks are hoarding cash. There has been many articles in the recent weeks about how credit has dried up. The result of this dry up is from the fact that no one wants to lend and that banks are hoarding their reserves.
http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=123
The third chart shows the amount of real earned collateral banks are holding.
http://research.stlouisfed.org/fred2/series/BOGNONBR?cid=123
Hence, what this chart shows is that banks are using 200 billion of debt to use as real collateral. This is a big concern and shows how banks are leveraged and under-capitalized.
Putting it all together, what we have here are unprecedented levels of borrowing by the banks, which they are hoarding and not lending to anyone, and they’re backed by about 200 billion in debt as real collateral against this borrowing. Terrific.
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